YouTube made a splash last fall when CNN engaged the video-sharing Web site to show mainstream Americans posing questions to candidates in the presidential primaries. Now the “social news” site Digg is bidding to enter the national psyche as well.

Backed by a fresh round of $28.7 million in venture funding this week, San Francisco-based Digg is embarking on a major expansion that aims to substantially raise the profile and reach of the 4-year-old start-up that claims more than 30 million unique visitors a month. Plans call for expansion domestically and globally, adding several new languages.

The ad-supported Web operation, free to users, is a kind of information clearinghouse that encourages people to post content found online — from trenchant journalism to silly videos — and invites them to rank the items in terms of perceived significance or entertainment value.

Digg Chief Executive Jay Adelson pointed out that CBS News on Tuesday aired a pre-recorded feature in which anchor Katie Couric separately asked presidential candidates Barack Obama and John McCain, “When is it appropriate to lie to the American public?” The question, as Couric noted, was selected by the Digg community.

The query, Adelson said, was an example of Digg’s ability to tap “the wisdom of the crowd.” In the future, the process may seem less like a novelty.

“The more people that get added to the Digg system,” Adelson said, “the better the crowd wisdom functions. It becomes more and more relevant the bigger we get.”

Many media sites that create original content, including mercurynews.com, enable readers to click on small icons of Digg and its rivals — such as Del.icio.us, Reddit and StumbleUpon — allowing users to post the articles to those Web communities.

Yet skepticism abounds about the significance of the rankings on Digg. Forrester Research analyst Jeremiah Owyang, who tracks social media, said Digg doesn’t practice so-called “crowd sourcing” so much as tapping its most ardent participants.

And Om Malik of tech blog GigaOM cites sobering data from the online metrics firm Quantcast. “Digg’s traffic is showing signs of plateauing,” Malik wrote this week. “What’s troubling is that a mere 1 percent of its users (who can be labeled addicts) are generating 32 percent of the visits.”

Digg also has been criticized for the way ardent users — including one with the nom de Web “Mr. BabyMan” — seem to exert disproportionate influence with their postings and rankings.

Digg’s new funding, however, represents a vote of confidence.

“Digg has really sunk its teeth” into an audience of hard-core Internet users, Owyang said. “Now it’s time to expand into other markets.”

Growth also enhances Digg’s chance to find riches through online advertising — the reason Highland Capital Partners, Greylock Partners, Omidyar Network and SVB Capital have invested in the start-up. The new $28.7 million round more than doubles the total raised in Digg’s first two rounds — $2.8 million in October 2005 and $8.5 million in December 2006.

Digg, said Adelson, has had success with an advertising alliance with Microsoft, putting it on a path to profitability within 12 months. The company sought additional venture capital to accelerate its growth. Plans call for Digg to add several new languages, localize its appeal for other English-speaking nations and enhance its site with new features. Digg figures to add 75 employees by December 2009, doubling its present workforce, and move to new San Francisco quarters triple the size of its current space.

The overseas opportunity is huge, Owyang said. Research shows that 44 percent of Internet users in China and 36 percent in Japan post criticism online, compared with 25 percent of Internet users in America.

The audience may also grow through an announced alliance with Facebook, which is still in planning stages, Adelson said. Facebook claims more than 100 million users, a majority outside the U.S. (Greylock partner David Sze is on the board of both Facebook and Digg.) Adelson said he expects to forge similar agreements with other social-networking sites.

Digg’s advertising model, Adelson said, has proven far more effective than conventional social-network sites because its technology tracks user behavior within the site and allows for better targeting of ads. But the method, Owyang says, still pales in comparison to the kind of search advertising that has made Google so successful.

Yet Adelson said Digg’s progress has already surpassed expectations when tech entrepreneur Kevin Rose launched the site in October 2004.

“It caught us by surprise how much pent-up demand there was for users to express what is important or relevant,” the CEO said.

FAST FACTS ABOUT DIGG
What: An interactive “social news” site; a place for people to discover and share content from anywhere on the Web.
Founded: Oct. 1, 2004
Key personnel: Founder and chief architect Kevin Rose, CEO and Chairman Jay Adelson. Seventy-five employees, with plans to grow to 150 by late 2009.
Headquarters: San Francisco
Venture capital financing: $40 million, including a third-round of $28.7 milllion this week led by Highland Capital Partners, following an $8.5 million round in December 2006, and $2.8 million in October 2005.
Rivals: Del.icio.us, Reddit, Kirtsy, Propeller, StumbleUpon
Source: Digg

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